Thoughts on Mandatory Market Population Levels

In over 20 years of buying and operating manufactured home communities, I’ve been able to determine some important points on market selection. And one of the big ones is the necessity and complexity of proper population levels. Here are my fndings. Quantity While giant markets sound great, the truth is that all you have to hit is around 100,000 population to have it all: an active Chamber of Commerce, a robust jobs market, big box retail, every franchise known to man, and plenty of demand for affordable housing. If you really think about it, those huge populations of 1,000,0000 and more are really nothing more than a bunch of 100,000 communities that abut. So while big markets may sound exciting, they are completely unnecessary. What happens as you get smaller As markets decline in size lower than 100,000, certain things change. It’s similar to what happens with aircraft. Big planes have multiple back-up systems in the event of a problem. Engine goes out? No problem, they can keep flying on the other two. But smaller markets are like private airplanes. They can still fly fine but they have more limited defenses against problems. So you have to be more careful about markets as size declines. That doesn’t mean that you can’t do great in a market of 25,000 – only that you have to be more careful in your selection. Quality Market size is not everything. There is also the issue of the “quality” of the market. A smaller market in Colorado, statistically, is infinitely better than a larger market in Mississippi. It all revolves around the science of the housing market itself. In a Colorado market with median home prices of $300,000, the demand for affordable housing – and the potential for higher rents – is infinitely higher than a market in Louisiana where the median home price is $60,000. That’s why we have invested in so many smaller markets where there are high home prices. Positive and negative growth observations Don’t be overly swayed by past and future rates of population increase or decline. There is an unusual phenomenon in the U.S.: in many markets there is very little population growth for the simple reason that there are few children being born. While this is extremely important in many industries, such as the restaurant trade where their revenue is based on total number of meals served, out industry is more reliant on filled housing units, not on how many people are in each home. We get the same lot rent whether the home as five residents or one. Watch for vacant housing rates that are in-line or lower than the U.S. average of 12.45% as shown on Bestplaces.net. The example of a cup with a hole in it One reason that many investors from the apartment and selfstorage industries panic around smaller markets is that they have been trained to fear markets in which the population is not growing at enormous rates. That’s why they congregate in the Southwest, where high birth rates give rise to high levels of population growth. But here’s the problem with that concept.  You can’t build any new manufactured home communities.  So you don’t have to have a constant rise in population to keep the existing ones full. With apartments and self-storage, there is a never-ending supply of new developments opening constantly, and you have to have enough new people coming on-line to have a prayer of occupying all of the new product and old product. It’s like a cup with a hole in the bottom, and if you don’t have the tap on full blast, there’s no way to get a drink. But when supply is shut down – as it is in our industry – there’s no hole in the bottom and you can fourish with zero new entrants into the market. It’s kind of like Warren Buffett’s concept of a “moat” on steroids. Conclusion I am very comfortable with smaller markets, and not that impressed with giant ones. There is more to great markets than sheer numbers alone. That being said, you have to do terrific due diligence on any market to make sure it has the raw material you need to succeed. But manufactured home communities can thrive in markets that apartments and selfstorage would fail miserably in, so keep an open mind and stick with science and not urban legend.   Dave Reynolds has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 23,000 lots in 28 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. He is also the founder of the largest listing site for manufactured home communities, MobileHomeParkStore.com. To learn more about Dave’s views on the manufactured home community industry visit www.MobileHomeUniversity.com. This article originally appeared in the Manufactured Housing Review, subscribe for free here.